TITLE: SHAH ORIGINALS V. COMMISSIONER OF INCOME TAX-24, MUMBAI
CITATION: CIVIL APPEAL NO. 2664 OF 2011 WITH CIVIL APPEAL NO. 2665 OF 2011 DECIDED ON: 21 NOVEMBER 2023
CORAM: JUSTICE B.V. NAGARATHNA AND JUSTICE S.V.N. BHATT
Justice B.V. Nagarathna and Justice S.V.N. Bhatt states that “the instant case is not proved or stated as falling within a statutory requirement/benefit. At foremost, by applying the meaning of the words “derived from”, as held in the catena of cases, we are of the view that profits earned by the assessee due to price fluctuation, in the facts and circumstances of this case, cannot be included or treated as derived from the business of export income of the assessee Consequently, For the above reasons and discussion, Civil Appeal fails and is dismissed. There is no order as to costs.”
Brief Facts:
The case involves Civil Appeal No. 2664 of 2011 and Civil Appeal No. 2665 of 2011 between Shah Originals and the Commissioner of Income Tax-24, Mumbai. The central issue revolves around the deduction claim under Section 80 HHC of the Income Tax Act for a gain of Rs. 26, 62,927 due to foreign currency fluctuations during the assessment years 2000-01 and 2001-02. Shah Originals contends that this gain should be considered in the computation of deduction under profits from the export business. Conversely, the Revenue argues that such gains do not qualify as profits derived from export and, therefore, should not be eligible for the Section 80 HHC deduction.
Court’s Observation and Analysis:
The judgment focuses on interpreting the expression “derived from” in Section 80 HHC of the Income Tax Act, emphasizing the necessity for a direct nexus between profits and gains and the industrial undertaking. The Court examines previous precedents that have consistently construed the term “derived from” narrowly in income tax law. It underscores that the deduction under Section 80 HHC is exclusively intended for profits from the business of exporting goods and merchandise outside India by the assessee.
The Court stresses a strict interpretation of the provision, concluding that the gain from foreign exchange fluctuations in the EEFC account does not align with the definition of “derived from” the export of garments by the assessee.
In a decisive ruling, the Supreme Court dismisses both Civil Appeal No. 2664 of 2011 and Civil Appeal No. 2665 of 2011. The Court upholds the position that gains from foreign exchange fluctuations are not eligible for the deduction under Section 80 HHC, emphasizing the necessity for a direct connection between profits and gains and the industrial undertaking involved in the export business. The judgment reaffirms the stringent interpretation of the provision and underscores its specific application to profits derived from the business of exporting goods and merchandise outside India.
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Written by- Komal Goswami
